Online advertising shows its age - ' Banner Year' (
Page 2 of 5 )
?">
Perhaps the most visible symbol of what's ailing online advertising is the rapid decline of banner ads. When they first appeared at the top of Internet pages less than a decade ago, banners cost about $35 to $80 per thousand impressions (i.e., people who viewed the promotion). That was a bargain: At the low end they cost about one-tenth the price of a full-page ad in a typical business trade magazine. A host of national advertisers—including the Big 3 automakers, major banks and consumer goods companies such as Procter & Gamble Co.—rushed to sign up.
>
But almost immediately it became apparent that something was wrong. Because actual response to ads can be tracked so accurately on the Internet—a capability that has long been the Holy Grail of marketing, and that is virtually impossible with radio, television and magazines—advertisers could calculate their returns on investment. But with initial click-thru rates as low as 2.5 percent in this new medium, banner ads were barely worth the effort. Some advertisers were finding that every 1,000 impressions yielded only about one-quarter of a paying customer.
Then came the consumer backlash. It didn't take long for Web surfers to see banner ads as an intrusion. Their constant, flashing presence stood in sharp contrast to the perception of the Internet as an open-ended information channel where people could decide for themselves whether they wanted to buy something, or simply browse content for free. Software companies responded to that sentiment by developing programs for blocking banners and other kinds of ads, such as pop-ups. About 20 percent of North American households with online access have installed such software, and another 28 percent say they would like to do so, according to a January 2005 Forrester Research report. And while the price of banner ads has stayed about the same during the past five years or so, their click-thru rate, while never impressive, has dropped precipitously—to less than .5 percent.
"A lot of companies assumed that moving their offline ads online was enough, and they threw out all of their smart marketing ideas, especially the notion that each medium requires its own unique approach," says Shar VanBoskirk, an analyst at Forrester Research. "Instead of applying disciplined rules and asking tough questions—Who are my customers online? Does this channel catalyze the behavior that I want to drive? Are my customers here?—marketers got excited about this funky, new medium and didn't go through the proper diligence to make sure they were getting the most from it."
Adds Peter Cashman, a principal at Moon River Pearls, an online jewelry retailer in Old Lyme, Conn.: "Internet advertising is a frustrating business. Like a lot of companies, we've cut our spending back because response rates were too low. But there is a way to make it work: Manage your budget by mixing keywords with blogs and other low-cost marketing approaches." With this strategy, Moon River generates 43 percent of its online sales from pay-per-click advertising and 57 percent from so-called "organic," free searches and repeat customers, says Cashman.
Story Guide:
Online advertising shows its age
Banner Year?
Word to the Wise
Return on Marketing
Return Behaviorism
Sold on Web Ads
Next page: Word to the Wise
Case Studies 
